Can Narayana Murthy Save Infosys?

The return of N.R. Narayana Murthy to India's Infosys, the company he founded, rekindled hope of a renaissance at the troubled Indian software exporter.

Infosys reappointed Mr. Murthy on Saturday as the executive chairman and additional director of the board at a difficult time for the Bangalore-based company. India’s second-largest IT firm by sales has been losing market share to competitors and its growth has fallen below the average for India's outsourcing industry.

The Mumbai- and New York-listed company even has struggled to meet its own financial growth targets, which were once a benchmark for the local software industry.

The board is betting that Mr. Murthy can recreate the magic of Infosys’ early years. Mr. Murthy founded the company with seven others in 1981. He was the chief executive of Infosys, before being elevated to the role of executive chairman from 2002 to 2006, a time during which revenues increased fourfold to $2.15 billion. He was non-executive chairman until 2011, when he retired.

Mr. Murthy, 67 years old, has been the face of India’s software revolution for the past decade, and his return to Infosys is designed to bolster shareholder confidence in a company that was once considered the bellwether for the industry.

“Mr. Murthy is an iconic figure,” said Peter Schumacher, president and chief executive of Value Leadership, a management consulting firm.

“He proved that a team of entrepreneurs from a dusty town in India can build from scratch a $25 billion company that is recognized around the world for excellence in performance, a company that also set a new gold standard in terms of transparency and corporate governance practices,” Mr. Schumacher said.

“This will do much to raise the morale and confidence of Infosys employees,” brokerage J.P. Morganid in a note to clients. On a business level, he will be able to take a more visible role in “interacting with clients and executing on strategy,” the note said.

J.P. Morgan said Mr. Murthy likely will focus on revamping the company’s two-year old strategy to boost margins by moving into high-end consulting. Previously, the company had focused on lower-margins businesses, such as software coding.

Others say Mr. Murthy's return alone may not cure the software company’s malaise. IIFL Capital, a Mumbai-based brokerage, said the company had declined to lower prices after the 2008 economic crash in the U.S., leading to a loss of market share. For the current fiscal year that began in April, Infosys forecasts 6% to 10% revenue growth; The National Association of Software and Services Companies forecasts overall Indian IT industry revenue to increase by an average 12%-14%.

The return of Mr. Murthy reveals a lack of potential leaders within Infosys, some analysts said.

“The need to bring Mr. Murthy back in an executive capacity, in some ways to us, signals the lack of leadership depth within the company, which will need to be addressed urgently,” brokerage BNP Paribasid in a note to clients.

Others say the challenges facing Mr. Murthy are much greater than seven years ago, when he was last in an executive role, due to the complexity off the company’s business.

In 2006, Infosys had 53,000 employees and revenues of $2 billion. Today, Infosys is a mammoth organization, with nearly 157,000 staff and revenues of more than $7 billion.

Ray Wang, chief executive and principal analyst at U.S.-based Constellation Research, says the formula on which Infosys built its success – doing back-end work quickly and effectively for U.S. clients – looks increasingly dated. Infosys, he added, will need to continue to push into higher-value consulting services. “The original formula for success no longer exists.”